Here's Why BioHarvest Sciences (NASDAQ:BHST) Can Afford Some Debt

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that BioHarvest Sciences Inc. (NASDAQ:BHST) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

What Is BioHarvest Sciences's Net Debt?

You can click the graphic below for the historical numbers, but it shows that BioHarvest Sciences had US$3.91m of debt in December 2024, down from US$20.5m, one year before. On the flip side, it has US$2.39m in cash leading to net debt of about US$1.52m.

How Strong Is BioHarvest Sciences' Balance Sheet?

The latest balance sheet data shows that BioHarvest Sciences had liabilities of US$14.3m due within a year, and liabilities of US$9.41m falling due after that. On the other hand, it had cash of US$2.39m and US$1.81m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$19.5m.

While this might seem like a lot, it is not so bad since BioHarvest Sciences has a market capitalization of US$96.0m, and so it could probably strengthen its balance sheet by raising capital if it needed to. However, it is still worthwhile taking a close look at its ability to pay off debt. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine BioHarvest Sciences's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts .

See our latest analysis for BioHarvest Sciences

In the last year BioHarvest Sciences wasn't profitable at an EBIT level, but managed to grow its revenue by 99%, to US$25m. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

Despite the top line growth, BioHarvest Sciences still had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at US$7.0m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through US$9.5m of cash over the last year. So suffice it to say we consider the stock very risky. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example BioHarvest Sciences has 3 warning signs (and 1 which shouldn't be ignored) we think you should know about.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.